This banking reform package aims to complete the reforms that the EU implemented in the wake of the financial crisis to make the financial system more stable and resilient.
The Capital Requirements Directive (CRD) together with the Capital Requirements Regulation (CRR) form the main legislative requirements which implement the main Basel III reforms in the EU. They apply to credit institutions and investment firms and set out the key prudential requirements amongst other things. The CRD in particular has been subject to regular revision, and now the European Commission is proposing an update to both through CRD V and CRR II. These form part of a larger package of banking reforms including proposals to amend the Bank Recovery and Resolution Directive and the SRM Regulation.
What has been proposed?
There are two key parts to the amendments which have been proposed. Firstly to make changes to reflect international prudential standards and, secondly to implement EU specific reforms which came out of the Commission’s review on the impact of CRD IV on banks’ financing in the EU. In relation to the CRR, the Commission proposes extensive amendments including:
- Introducing the leverage ratio and net stable funding ratio;
- Implementing the Financial Stability Board total loss absorbing capacity standard;
- Implementing various post Basel II reforms relating to market risk, counterparty risk, credit risk, exposures to central counterparties, investments in funds and large exposures’ and
- Introducing measures to improve lending to small and medium sized businesses and to infrastructure.
In relation to CRD IV, the Commission has made proposals with regards to exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures.
What’s happening next?
Whilst the Commission published its legislative proposals for CRD V and CRR II back in November 2016, the main agencies are still to agree their negotiating positions. You can read some of the latest commentary here. The earliest this is expected to come into force is 2019.